Business Directories

Is WTO about to abandon dream of free trade?

Geneva, January 14, 2013

By Tom Miles

As it seeks a new chief to lead it out of a negotiating death-spiral, the World Trade Organization looks doomed to be fatally undermined by new global carve-ups that will leave many of the world's poorest sidelined.

At its creation 18 years ago, as the "third pillar" of the post-World War Two economic system alongside the World Bank and the International Monetary Fund, tariffs fell by a third and world markets, from farm produce to finance, were opened up.

A boom in commerce ensued, gathering pace when China became a member in 2001. But then, at a meeting in Doha that year, the WTO launched an ambitious attempt to push for further liberalisation that would help developing countries most of all.

The talks dragged on for 10 years, failing to resolve a split between the developed and developing worlds, mostly over agriculture. WTO Director-General Pascal Lamy, who vowed in 2005 to make them his "first, second and third priority", finally declared an "impasse" in 2011.

The WTO's first head, Peter Sutherland, wrote in an op-ed published on Dec. 31 that it was "a unique failure in the history of multilateral trade negotiations".

The stalemate triggered a scramble to arrange preferential trade terms outside the WTO - regional deals such as the US-led Trans-Pacific Partnership and bilateral agreements such as the one the European Union is pursuing with the United States.

"If either ever comes to pass, which I doubt, a huge share of world trade would be conducted within a discriminatory framework," wrote Sutherland.

Such deals were already common before the "impasse", but afterwards they became the main focus for many countries seeking a route back to economic growth. British Prime Minister David Cameron has made an EU-U.S. deal one of three priorities for the UK's presidency of the G8 group of nations, which began this month.

"The big question is this: does the WTO retain its centrality in the trading system? It's down to the next WTO head," said Simon Evenett, professor of international trade at St Gallen University in Switzerland.

Jagdish Bhagwati, professor of economics at Columbia University in New York, compared the WTO system to a three-legged stool, resting on negotiations, rule-making and dispute settlement. With one leg broken, the others start to wobble.

"You can't do away with bilaterals and regionals, but as long as the first leg is not broken, the second and third won't be," he said. "The director-general has to come in and say that these things are here to stay, but how do I reconcile all this with the purposes of the WTO system which I am guardian of?"

Nine candidates vying to succeed Lamy will make their pitch to the WTO's membership at the end of this month. Many in the audience have spent a decade toiling over Doha, so none of the hopefuls is likely to trash it or claim to have an easy fix.

Instead, Evenett said, they will distance themselves obliquely, with lines like: "It was not our finest hour" or "There's still some way to go", while suggesting they could be part of a creative process to try and figure out how to move on.

"This is not business as usual," said Richard Baldwin, professor of international economics at the Graduate Institute of Geneva.

"By analogy, the WTO needs a Bernanke or Draghi - a policy leader who can think out of the box and understand how the world has changed and how the policy must change with it - not a Greenspan or Trichet, who were simply implementing the old rules in a faithful, dogmatic style," he added.

But the chances of a revolution are slim.

"The way I see it now," said Baldwin, "the US and China are happy to let the WTO languish - China has nothing to complain about that could be fixed by any conceivable version of Doha, and the U.S. sees no substantial gains from finishing Doha on the current terms."

Both he and Evenett said there was a chance that the WTO would pick a "placeholder" director-general.

"If they want a quiet time, you might not want a particularly ambitious WTO head. Someone who just treads water might be acceptable," said Evenett.

That would allow the surge of regional deals to continue unchecked. They would entrench and lubricate corporate supply chains, a bonus to big business, but would do nothing to assuage developing countries wanting a fairer deal on agriculture or better access to rich markets for their exports and services.

Bhagwati said the TPP was untransparent and influenced by lobbyists, ensuring that it was full of side conditions, such as stipulations on labour and intellectual property, which made it impossible for developing countries to sign up to.

"The lobbyists have to be sidelined," he said.

If the TPP and the "mega-bilaterals" succeed, Baldwin said, global trade will be back to the pre-WTO days, dominated by the "Quad" - the United States, EU, Canada and Japan, with negotiations run by and mostly for the Quad members.

"This will threaten China, India and Brazil (and others) with exclusion, and at that point, we'll see the current stalemate destroyed. There will be room for discussions to bring the TPP-like disciplines to the multilateral level."

But the WTO cannot wait for the regional deals to develop to the point they can be harmonised into one whole. Even if that eventually happened - and Baldwin thinks it will require a new body, a WTO 2 - Sutherland believes that regional deals are already doing lasting damage to the credibility of the WTO.

"Now we are really in danger," said Bhagwati. "Let's hope it works out because this is our last chance to save the WTO," he added.-Reuters